Does A Voluntary Repo Hurt Your Credit?

Is There Any Harm in Voluntary Repo on Your Credit?

If you are having difficulties in making payments to the car loan, you might be wondering whether surrendering your car to your lender – voluntary repossession or voluntary surrender – would hurt your credit rating. In a nutshell, a voluntary repo is likely to lower your credit score as compared to an involuntary situation although the impact may not be as severe.

Voluntary Repo and Your Credit Score

When you are financially unable to make the payments, you choose to voluntarily return the car to the lender. This is not the case with an involuntary repo, in which case the lender may seize the car should loan performance fall short of the required standards. Still, both kinds of repossession may seriously damage your credit score.

Fascinatingly, voluntary surrender damages your credit score just as much as an involuntary repossession. Since you failed to make a payment, the lender told the credit bureaus you turned in the loan collateral. They see it as a negative note and might seriously lower your credit score.

From the date the incident happened, a voluntary repo might show up on your credit record for up to seven years. And everything shown on your credit record will cause some points off your credit score. The result is most evident in the first year after default and becomes less noticeable with time.

Should this be the first significant bad item in your otherwise good credit record, your credit score may be dropped by 100 points or more. If you had an excellent credit score before defaulting on your payments, the situation is even worse. Conversely, voluntary repossession is unlikely to lower your credit score should yours be poor.

Potential Credit Score Damage:

• Minimum of 100+ points lost if you previously had very good credit
• 50 – 100 points gone if you had a fair/average credit score
• Not much difference if you were previously turned down by credit card companies due to bad credit.

Moreover, a voluntary repossession reduces your score, and it also makes you look very risky to all future prospective lenders and creditors. They understand that you can barely meet past debts and they will probably not extend credit to you.

Differences from Involuntary Repossession

A forced repossession is when you give up on the car and let the financing company take it back without paying the balance. At this stage, the lender will be forced to seek the services of a company that will search for the vehicle and seize it without the consent of the owner. In some cases, this might even mean getting legal court orders if you don’t wish to relinquish it once found.

This process makes involuntary repossessions seem particularly disadvantageous from the perspective of a lender. Thus, an involuntary repo is likely to reduce credit scores slightly more than a voluntary repo because it shows that the borrower intentionally failed to make the payment.

Nevertheless, the actual difference in credit damage between voluntary and involuntary vehicle repossession is usually a few points. Both are considered as a default on credit obligations and they can drop the scores ranging between 50 and above the 100 level for the previously creditworthy individuals.

Therefore, the primary benefit of voluntary surrender is the prevention of some of the other fees and costs that may accompany involuntary surrender. This involves possible costs that arise from the repossession company hunting down the vehicle and taking it if you do not surrender it voluntarily. This is because by minimizing on such extra costs your overall default amount owed to the lender may be lower in the long run.

Measures to Undertake when Surviving a Voluntary Repo

1. Keep up the on-time payments on all other credit accounts as well. Ensuring that all other payments are made perfectly from here is very important. That is, anything else and a default will be painful or costly, which means that missed payments on anything else will hurt more after a default.
2. Reduce credit card balances. Maxing out cards will now hurt your post-repossession credit so reduce high balances if possible.
3. Wait for the repo to stop appearing on your reports. After about 3 years of illness, the worst is over. To maintain or improve credit scores, one must avoid closing accounts and ensure timely payments.
4. Turn to credit counseling services if one has issues with debts. They assist in the placement of payments and dealing with creditors.
5. If you can, build your alternative positive credit. For instance, get an authorized user status on another person’s credit card. Positive alternatives can assist in increasing scores.
6. Apply for secured cards for credit. These attract deposits which act as the spending limit. They show reasonable usage that aids in the retrieval of credit.

The Bottom Line

Voluntary repossession does make you avoid some extra expenses and legal procedures in the future. But do not be fooled – it will still adversely affect your credit score, perhaps not as much as in cases of involuntary repossession in some instances. Know that your credit score may drop and this usually stays for several years especially if you don’t have a good plan on how to rebuild it after a voluntary surrender of your vehicle, there is however hope for credit repair if you are determined to work towards a better credit status.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!